If a Two-Stock Portfolio Is Equally Invested in Stocks with Betas

question 31

Multiple Choice

If a two-stock portfolio is equally invested in stocks with Betas of 1.4 and 0.7, then the portfolio Beta is:

• A)0.70.
• B)1.05.
• C)1.40.
• D)2.10

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Definitions:

Debenture

An unsecured loan certificate issued by a company, backed only by the general creditworthiness and reputation of the issuer.

Default Risk

The likelihood that a debtor may not fulfill their debt contract obligations.

Yield Maturity

The term generally refers to the date when a bond or other fixed-income security matures, at which point the issuer is obligated to pay the principal amount back to the bondholders.

Asset Pricing

The method of determining the fair value of assets, taking into account various risk factors and expected returns.